Andrew Laird: The Chancellor’s productivity drive must start with public services

Philip Hammond admits his focus on productivity probably won’t set political pulses racing. But he is absolutely right to focus on it as turns out we are appallingly unproductive. As the Chancellor has highlighted, our national productivity is not just lower than the US and Germany (which we might grudgingly accept) but it is also lower than France and Italy. That should make us feel deeply uncomfortable. Don’t bother springing out of bed an hour earlier tomorrow as that will probably just make matters worse – productivity is about working smarter rather than longer.

One area where the Government should be able to kick start some progress is within public services. Our productivity performance here is particularly dire. As the Reform think tank has noted in an excellent study earlier this year, it’s very difficult to make any sensible international comparisons. However, the fact that public service productivity has essentially flat-lined since records began in 1997 should be enough to set alarm bells ringing.

Let’s take a closer look at the data from the NAO – see the graph below. If we zoom right in on what is essentially a flat line at full scale, we can see that some improvement has been made since 2010. But public sector productivity is still only 1.2 per cent higher than it was in 1997.

You would have thought all the technological and medical advances that have occurred since 1997 would have led to more impressive productivity improvements. The huge advancements in mobile communications alone should have had a big positive effect. It hasn’t.

I think it’s fair to say that the small improvements in public sector productivity since 2010-11 have been mostly driven by budget reductions. According to the NAO, since 2010-11 councils have seen their incomes cut by 25 per cent with a further eight per cent reduction expected between now and 2019-20. A lot of public services have been in survival/preservation mode and have been salami slicing rather than attempting any serious reform. There is a fast approaching limit to how much can be achieved from this approach.

So what can we do?

We need to encourage those delivering public services to think and act like entrepreneurs. In the private sector a company loses its spark if there is no room to grow and/or no competitive pressure. But this is the situation many public services find themselves in. They operate in a fixed geography with a fixed cohort of clients. They also often operate in a one-year budget cycle which allows no room for future planning. It’s a no-win situation which can only lead to demoralised staff and flat-lining productivity.

This is nothing to do with the commitment of the people delivering services, many of whom would relish the opportunity to be more entrepreneurial and offer their service to other customers to generate additional income. Couple this with the ability to plan over a three- to five-year period and many of them would be in heaven. They would happily accept the competition for survival that this would inevitably lead to. Better than simply withering on the vine.

I know what some of you are thinking – just give it all to the private sector and let the market do it all for us.

However, the solution to driving innovation and productivity in public services is not to simply throw open the doors to a pure capitalist model. The key element that will keep this market functioning in the best interests of the service user and taxpayer is the substantial participation of entrepreneurs from the public sector.

This type of public service entrepreneurship involves the combination of a strong public service ethos with disciplines of the commercial sector. It’s difficult to enable this within the traditional bureaucratic structures of the public sector. To escape, services from social care to libraries will need to break free and move to new more independent models (like public service mutuals or local authority trading companies). This can get rid of much of the red tape in one fell swoop and allow staff to be much more entrepreneurial, innovative and (as will naturally follow) productive.

There are already some excellent examples of entrepreneurial public service organisations. Achieving for Children was set up as a joint-venture between Richmond and Kingston councils to deliver children’s services to both councils from a new independent organisation. They are now just about to take on the delivery of children’s services at Windsor and Maidenhead. In Devon, the libraries service (now Libraries Unlimited) has recently transferred to a staff and community-owned mutual and will now be free to pursue other sources of income and take on library services from other councils.

Theresa May has expressed a desire to see a more diverse public service market place with more public service mutuals. The Prime Minister has also spoken of the Government stepping up to repair markets where they are not working. So where better to start than by releasing the inner entrepreneur of our nurses, social workers and librarians? It’s the best way I can think of to kick start public service productivity.